Emergency Fund Planning
Terms
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- Why do you need to keep some of your money in liquid assets?
- So you can pay your bills and other regular living expenses without having to dip into your long-term investments
- What is the single most important aspect of liquid assets?
- Acts as a shock absorber in crisis situations.
- Adequate liquidity ratios
- Liquid assets should equal 3 to 6 months of take home pay
- Assets to current liability
- Measures liquid assets to current liability
- Liquid assets to take-home pay ratio
- = liquid assets/ annual take-home pay. which equals % of 12 months. So .266 = .27 of year or 3.2 months. Answer is Expressed in number of months.
- Liquid Ratio Measurement
- Liquid assets / current liability. Any debt that must be repaid within 1 year.
- Emergency fund
- The emergency fund should contain assets that can be converted to cash quickly and easily, with little or no risk of loss of principal
- Emergency fund examples
- examples of assets that are commonly used in emergency funds and the planning of such funds include cash, checking and savings accounts, money market mutual funds, U.S. Treasury bills, certificates of deposit (CD's), cash value life insurance, lines of credit, company savings plans and home equity loans
- 3 Advantages of Automatic payroll deduction
- 1. Saving is made easy 2. Money automatically deducted 3. Money is immediately deposited to earn interest.
- Best deposit alternatives you need to consider
- 1. returns using comparable interest rates, 1. tax status, and 3. safety or risk.